A rising number of parents are taking their own kids to court after lending them money for a house deposit only to not get the money back.
It’s estimated that there are 12 to 15 cases of parents taking their adult children or their child’s spouse to court for this reason each month.
In one recent case, a couple spent £380,000 on legal fees and costs following their son’s divorce. They claimed that they didn’t want their former daughter-in-law to walk off with half of the £2million they gave them to buy a house, arguing the money was an investment in the property and not a gift.
The couple were unable to convince the judge and not only did they lose the case and their cash, they had to pay their former daughter-in-law’s legal bill.
Another case saw parents “investing” money from the sale of their former home into a new house they bought with their sons.
The parents lived in the basement of the new home and one of the sons lived in the rest of the house.
However, the sons decided to sell the property even though the parents wanted to continue to live there.
Colin Young, a lawyer who worked on the case said: “One of the sons refused to acknowledge that the money invested… wasn’t purely a gift, and the parents had to go to court arguing that they had an interest in the property.”
The parents were unable to prove this and the property was eventually split 50-50 between the sons with nothing for the parents.
The ‘Bank of Mum and Dad’ is expected to lend around £6.3billion this year, making the ‘bank’ the country’s tenth biggest lender.
Greg Williams, a barrister at Coram Chambers, which specialises in family property disputes, has said his workload has trebled since 2014.
He believes the most common reason parents wanted their money back was when their children and their partner split up.
Mr Williams also said he thought the rise in these cases was connected to the rise in house prices, especially in the south, which had led to parents helping their children out financially.
He said: “A frequent example is where the parties agree that the parents of one of them contributed a large sum to the purchase of the property, but they cannot agree what the basis of that contribution was. Was it a gift, a loan, or an investment leading to a beneficial interest?”
How can parents get money back if the property is sold?
If parents want to give their child money for a deposit on the basis that if the property is sold, they get the money back, they’ll need to have a ‘deed of trust’ drawn up by a solicitor. This will set out how much money has been contributed and how it needs to be repaid if the child sells the property in the future.
Can parents charge their child interest on the money used for a deposit?
If parents want to charge interest (personally, I feel this is peak baby boomer greed) it’s wise to formalise the arrangement via a ‘promissory note’ which would need to be drawn up by a property solicitor. Failure to formalise the agreement would make it difficult to get the money back if the child refused to repay it or insisted it was given as a gift.
What happens if parents help their child to buy a home and later need it back?
Before gifting money for a deposit, parents should think really carefully about their financial situation both now and in the future. If their circumstances change and they suddenly need the money back, not only does this put their child in an uncomfortable and potentially difficult financial situation, legally speaking it can be difficult to get the money back.
Usually, when gifting money for a deposit, parents have to sign a legal document to say the money is a gift rather than a loan and does not need to be repaid.
To learn more about buying your first home, take a look at Can’t Swing a Cat’s first time buyer blog section.